Most people have heard of stocks and stock trading. Many people recognize the name Wall Streetâ and associate it with shares and making money. Some may have dabbled in the stock markets based on rumors and the suggestions of friends or family but without and understanding of how the markets operate. While it is certainly possible to make money on the stock market, it should be done with an understanding of its fundamentals. Before attempting to make money with stocks, it is important to know how shares work and how money can be made from the buying and selling (tradingâ)of shares in companies.

What are Shares?

Shares or “stock” represent a stake in a company. If an individual owns shares in a company then they own a part of it. They share that company with all of the other shareholders. There are basically two ways to make money from shares: sell shares and appreciation. Dividends may be paid out to shareholders from a company’s profits. They also may not be paid out. Companies are not obligated to pay dividends and therefore it is not a reliable way to generate an income from shares. Then there is the second way: from appreciation. This means the degree to which the shares go up in value. For most people who buy and sell shares, the whole point is to buy a share that that goes up in value. When it grows in value it may then be sold at a higher sum than was paid for it. This is capitalism at its simplest. Buy for less, sell for more. That is what Wall Street is all about in the most basic terms. Of course, there is more to it.

What Does a Stockbroker do?

Their job is to facilitate the law of supply and demand. In other words, they help those who want to sell find those who want to buy. Representatives of buyers and sellers agree on a price and the stock gets sold. Hopefully with both parties happy with the trade. This is what happens on the trading floor of the New York Stock Exchange (NYSE) every day. It could be considered a high dollar version of a Saturday morning flea market. Unlike the NYSE, electronic stock exchanges like the NASDAQ operate without a physical trading floor. Instead, the buying and selling happens electronically. In keeping with the flea market analogy, markets like the NASDAQ could be likened to an online classified ads website. Both the NYSE and the NASDAQ work on the same principle, just with different venues.

How Are Shares Sold?

In the old days before the widespread use of computers, a person who owned shares in a particular company would be issued a stock certificate. This was a piece of paper indicating that they owned a certain number of shares. If they wanted to sell their shares they would go to a stockbroker with their certificate in hand. These days, online brokers are able to buy and sell shares electronically. The ability to trade shares without paper means that the process is faster and easier for everyone. Benefits provided by online stockbrokers include:

Online trading tools.
Lower fees per trade.
Full control of trades.
Speed of trading.
Access to multiple markets.

Thanks to online brokers, trading shares is no longer the province of the wealthy. Anyone with a little money to invest and an internet connection has the opportunity to grow their wealth. For every trader, the path to stock market success starts with an understanding of the basics of buying and selling shares.

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEEDor EMAIL updates. You can also find me on TWITTER
and FACEBOOK
. Happy investing 🙂

This post was written by yours truly, Jon Elder. My mission is to help you succeed in your personal finance life. Join me on the journey to financial freedom! You can subscribe through RSS FEEDor EMAIL updates. You can also find me on TWITTER
and FACEBOOK
. Happy investing 🙂